Fundamentals of Needs Analysis

1 / 35

# Fundamentals of Needs Analysis - PowerPoint PPT Presentation

Fundamentals of Needs Analysis. How is EFC Determined?. Three regular full data formulas Dependent student Independent student Independent student with dependents other than a spouse. How is EFC Determined?. Simplified Automatic zero. Formulas – Dependent Students. Simplified Formula

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.

## PowerPoint Slideshow about 'Fundamentals of Needs Analysis' - benjamin

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.

- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
How is EFC Determined?
• Three regular full data formulas
• Dependent student
• Independent student
• Independent student with dependents other than a spouse
How is EFC Determined?
• Simplified
• Automatic zero
Formulas – Dependent Students
• Simplified Formula
• Assets not considered
• Parents’ AGI or earnings from work < \$50,000 and
• Parents are not required to file IRS form 1040
Automatic Zero
• EFC is automatically zero if
• Parents’ AGI or income earned from work is \$20,000 or less and
• Parents are not required to file IRS form 1040
Independent Students
• Independent Students w/o Dependents other than a spouse
• Applies to single & married independent students
• May NOT qualify for automatic zero EFC
• May qualify for simplified formula
• Student (and spouse) AGI or earnings from work < \$50,000 and
• Student (and spouse) not required to file IRS form 1040
Independent Students
• Independent Students with Dependents other than a Spouse
• Analysis looks much like that of parents of dependent students
• EFC automatically zero if
• Student’s (and spouse’s) AGI or income earned from work is \$20,000 or less and
• Student (and spouse) not required to file IRS form 1040
Independent Students
• May qualify for simplified formula
• Student (and spouse) AGI or earnings from work < \$50,000 and
• Student (and spouse) not required to file IRS form 1040
Simplified & Automatic Zero
• Means-Tested Federal Benefit Programs
• Students also qualify for simplified formula or automatic zero if, in addition to meeting relevant income thresholds, they or their parents received benefits from a means-tested federal benefit program
• SSI
• TANF
• WIC
• Food Stamps
• Free or Reduced Price Lunches
Factors that affect EFC
• Number in Household
• Number in College
• Taxed and Untaxed income
• Taxes paid
• Investments
• Age of the older parent
• Number of wage earners
Principles of Need Analysis
• Family has primary responsibility to pay for educational costs
• Student and parents are expected to contribute to the extent they are able
• Family should be accepted in its present financial condition
• Families should be evaluated in an equitable and consistent manner
Need Analysis Concepts
• Need-based funds are available to assist with educational costs that exceed the family’s ability to pay
• FM assesses strength at the time of application
• Family resources are devoted first to basic subsistence
Need Analysis Concepts
• Beyond basic needs, families can exercise discretion
• FM allowances protect family resources
• Basic needs
• Non-education related discretionary costs
Need Analysis Concepts
• FM measures discretionary resources
• Establishes a portion available for education
Treatment of Income in FM
• Total Income:

Base year income from all taxable and untaxable sources

-Exclusions (FAFSA Worksheet C)

=Total Income

Treatment of Income in FM
• Available Income
• Portion of income remaining for discretionary spending:

Total income

-Total Allowances

=Available Income (AI)

Total Allowances
• Allowances for taxes
• U. S. Income tax paid
• Estimate of state and other taxes
• State of residence
• Amount of total income
• FICA
Total Allowances
• Income Protection Allowance-IPA
• Estimates amount needed for basic needs
• Based on Bureau of Labor Statistics lower budget expenditures adjusted for CPI
• Increases with each household member
• Decreases with each member in college
Total Allowances
• Employment expense allowance
• Represents additional costs when both parents work
• Applies to working single parent families
Treatment of Assets in FM
• Assets defined
• Cash, savings, checking
• Investments and trusts
• Real estate equity
• Business/farm equity (non-family only)
• Protects first 60% of equity up to \$105K
• Decreases protection percentage after \$105K
Treatment of Assets in FM

Cash, savings, checking

+Net worth of real estate and investments

=Total Net Worth

Treatment of Parents’ Assets in FM

Total Net Worth

-Education Savings and Asset Protection Allowance

=Discretionary Net Worth

Treatment of Parents’ Assets in FM
• Education Savings and Asset Protection Allowance
• Protects assets for retirement and future education costs
• Applies > age 25
• Increases with age
• Adjusted for marital status
• No protection for dependent students
Treatment of Parents’ Assets in FM

Discretionary Net Worth

X 12% (asset conversion rate)

=Contribution from Assets

Parents’ Available Income (+ / -)

+Parents’ Contribution from Assets (+/ 0)

=Total Adjusted Available Income (+ / -)

Determining Parents’ Contribution
• As income increases, amount needed for basic household expenses decreases
• Discretionary income increases
• Income available for education

Adjusted Available Income (AAI)

X AAI contribution rate

=Total Parents’ Contribution from AAI

Determining Parents’ Contribution
• Total contribution from AAI is divided evenly among all household members in college

Total PC from AAI = 9-month PC

Number in College

Case Study #1 - The Baldwin Family
• A married couple with 3 children who live in NY
• 2 children will attend college F/T in 07-08
• Older parent is age 48
• Only father works. He completed a 1040A with an annual salary of \$35,000 with no other income or adjustments.
• Paid \$6,000 in income tax
• \$20,000 in savings & \$5,000 in investments
• \$2,000 in untaxed income & \$1,500 in Hope/Lifetime Learning Credit
Determining Student’s Contribution

Total of student taxed + untaxed income

- state and federal taxes

• \$3000 IPA

-allowance for parents’ negative AAI

= Available income (AI)

X 50% assessment of AI

= Student contribution from AI

Determining Student’s Contribution

Cash, savings, checking

+Net worth of real estate and investments

=Total Net Worth

X 20%

=Student contribution from assets

Determining EFC

Parents’ Contribution

+Student’s Contribution from AI

+Student’s Contribution from assets

= 9 month EFC

Case Study #1 - The Baldwin Family
• Has an AGI of \$5,000
• The student does not work
• Has \$2,000 in savings
• Completes a 1040A
What about Unusual Circumstances?
• If you have a student with unusual circumstances you can use professional judgment to adjust:
• Cost of Attendance
• Adjust elements that are related to the student’s cost of attending the school
• Data elements that are part of the formula
• You may not adjust the bottom line
Case Study #2 - The Smith Family
• A married couple with 2 children who live in CA
• 1 child will attend college F/T in 07-08
• Older parent is age 50
• Completed a 1040.with an AGI of \$180,000.
• Father’s income = \$90,000, Mother’s income = \$70,000
• Paid \$40,000 in income tax
• \$5,000 in savings & \$10,000 in investments
• \$7,000 in untaxed income.
Case Study #2 - The Smith Family
• Has an AGI of \$6,000
• Taxes paid = \$300
• Earned 5700 from work
• Has \$500 in savings
• Completed a 1040A